Why Palantir’s departure won’t doom Silicon Valley

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Fortune senior writer Michal Lev-Ram in for Adam this morning.

I’ve seen many startups come and go in downtown Palo Alto—Google, PayPal, and Facebook, to name just a few. These departures have primarily been driven by necessity, either because a company outgrew its digs, or because it had to shut down, sometimes in a spectacular flurry of failure. (Remember Color, the photo-sharing app that raised more than $40 million before it had a single user and then quickly collapsed?) Not so with Palantir, though. The data analytics company is leaving my adopted hometown not because of hypergrowth or sudden failure, but due to irreconcilable differences.

Earlier this week, Palantir announced its intent to go public but also made news for moving its headquarters from Palo Alto to Denver. “Our company was founded in Silicon Valley,” Alex Karp, Palantir’s CEO, wrote in a letter accompanying Palantir’s filing. “But we seem to share fewer and fewer of the technology sector’s values and commitments.” 

Karp’s beef with the Valley’s “engineering elite,” as he referred to local talent, appears to have two prongs: In his letter, he called out both consumer Internet companies’ reach into the most intimate aspects of our lives and the backlash against companies who sell to defense and intelligence agencies—like Palantir. 

Pre-pandemic, Palantir did generate unwanted attention for such contracts. Activists took particular issue with the software company’s business with the Immigration and Customs Enforcement agency, organizing protests outside of its Palo Alto offices on several occasions.

Interestingly, there were others who didn’t love the company’s presence in Palo Alto, but for very different reasons.

Palantir once dominated downtown Palo Alto. You couldn’t blow a vape cloud here without it hitting a young engineer in a black Palantir jacket. Over a number of years, the company took over so much office space—even repurposing an entire building to serve as its corporate cafeteria—that some in Silicon Valley complained it had “sucked the life out of the startup ecosystem in Palo Alto.” Being the largest commercial tenant meant that there was little (literal) space for fledgling startups, or at least that was the allegation.

Quietly, Palantir has already vacated several of the buildings it used to fill. Now, with the company officially moving its HQ to Denver, you’d think its critics would rejoice. That’s not exactly the case.

“Pre-COVID, it would have helped the revival of Palo Alto as a startup spot,” Jeff Clavier, founder and managing partner of Uncork Capital, says of Palantir’s departure. The Silicon Valley investor is a long-time former resident of Palo Alto and still rents a small office in town. I first interviewed him in the mid-2000s, when I was a reporter at Business 2.0., a magazine that was so good at chronicling the rise and fall of tech companies that it too experienced a dramatic boom and bust. Over the years, I’ve had several conversations with Clavier, including about Palantir’s presence in Palo Alto, which he believed stifled the startup scene. Now, he’s not so sure the empty buildings Palantir leaves behind will be filled with new investment opportunities, at least not any time soon.

“There are good reasons to leave California,” Clavier told me over the phone, after apologizing for having to speak through a mask. (In case you haven’t heard, the Bay Area is now dealing with the pandemic and a horrifying string of fires which have burned homes and forests and made our air almost unbreathable.) “And we’re entering a phase where founders can make personal choices [on where they want to be located].”

Does that mean Palo Alto will never again be a center for entrepreneurs? I wouldn’t be too concerned. If covering the Valley from inside the Valley has taught me one thing, it’s that, like annoying buzzwords, companies come and go. Of course, if Stanford University and Sand Hill Road ever move to Denver too, then we really are screwed.

Michal Lev-Ram

@mlevram

michal.levram@fortune.com

This edition of Data Sheet was curated by Aaron Pressman.

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